Autumn Budget 2025
Lord Griffiths of Fforestfach Excerpts(1 week, 6 days ago)
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Lord Griffiths of Fforestfach (Con)
My Lords, it is a great pleasure to take part in this debate. I thank the noble Lord, Lord Sikka. We disagree on many things, but whenever he speaks he always raises in my mind that economics is not just about money: it is about values and principles. In that sense, what he raised in his speech is a challenge to us.
I want to refer in my speech to two fundamental judgments that I believe the Chancellor and the Treasury made when they drew up this Budget. The first was the refusal to tackle the scale of the problem of public sector debt, and therefore to live with the problem of economic stability or to make it precarious. At present, public sector debt, as we have heard, stands at roughly 95% of GDP. It is twice the average of other advanced economies. The reason why our interest rates and 10-year gilts are higher than in other advanced countries is precisely that. Borrowing is set to come down annually, but national debt is not. In fact, it is due to increase annually for the next three years, as the noble Lord, Lord Burns, reminded us, and then it will come down by a very small fraction.
It is painful to tackle the problem of national debt, in both economic and political terms. Roy Jenkins found it difficult in the 1960s, as did Denis Healey in the 1970s, Geoffrey Howe in the 1980s, and my colleague and noble friend Lord Lamont in the 1990s. I believe, however, that there is no way to tackle the size of our public debt without cutting expenditure. Even though debt is rising, there are still spending risks. We do not really know what the outcome of the welfare bill is because we do not know what the demands will be. We do not know what immigration is. We have NHS strikes—will there be more? We have a defence budget that, frankly, does not really meet our defence needs. We also have the issue of public sector wages.
The OBR’s conclusion is that despite the greater headroom, which is welcome, it
“remains a small margin compared to the uncertainties”.
It mentioned, first, our economic forecast; secondly, our fiscal forecast; thirdly, the uncertain yield from tax changes; and fourthly, fundamental departmental budgets. There is one other element that is at risk, which is to do with the Bank of England. The Bank has a difficult situation: fixing interest rates, and yet not pulling them down enough to deal with the challenges of inflation.
My second point is that every successful economy needs a vibrant middle class that creates wealth. This Budget is really an attack, and a road to a two-class system between the very wealthy and workers, but with a shrinking middle class. Frankly, that is not grounds for hope through the Budget.
National Debt: It’s Time for Tough Decisions (Economic Affairs Committee Report)
Lord Griffiths of Fforestfach Excerpts(7 months, 3 weeks ago)
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Lord Griffiths of Fforestfach (Con)
My Lords, I acknowledge my debt as a member of the committee to the noble Lord, Lord Bridges, as chairman. He was totally engaged, always impartial and invariably responsive to members’ requests, so I thank him.
From the evidence that we have heard in this debate today and from the report, no one can judge that we are in other than a very serious position as a nation. If anything more was needed, there were flashing red lights earlier this week in March’s government borrowing figures. On any sober assessment, this debate has shown that public spending and public borrowing are out of control. At the same time, as the noble Lord, Lord Burns, made very clear, the potential tax revenue we can get from economic growth is going to be meagre, with growth forecasts by the Bank of England, by the OBR and this week by the IMF having been slashed.
I accept, of course, that the Chancellor is not helped by the paralysing uncertainty of the global economy, but we must face the fact that our debt problems are primarily homegrown. Government spending is clearly not under control, and the tax take, despite that, is at its highest level for years.
Meanwhile, the Chancellor recognises that tough choices need to be made. The debt or bond vigilantes may have saddled up, but I do not think that they are hostile to the Chancellor. What they are concerned about is that the Government’s fiscal policy is drifting; there is no clear direction, despite what is said. It appears that the Government are not really in control. This week, the IMF published its annual report and said that the outlook was “severely adverse” for all advanced economies.
I want to mention something that we touched on in the review—certainly questions were asked about it, but they were explored only superficially—and that is a fiscal rule, such as a debt break, placing a ceiling on the ratio of debt to GDP. This is a measure in which I have taken a particular interest because of my academic connections with Switzerland, which adopted a debt break, while Germany followed Switzerland and adopted it too. Today, the ratios of national debt to GDP are 38% in Switzerland and 63% in Germany, and their 10-year bond rates are significantly below the UK’s.
A debt break rule is not simple: it needs to have a ceiling, a cyclical adjustment and an exemption clause. The irony is that the UK once had such a fiscal rule—and who no less than Gordon Brown was Chancellor at the time? In his first Budget of 1997, he introduced a ceiling of 40% of national debt to GDP. When the euro was set up, we did not enter it; the euro set a ceiling of 60% and still does—yet Gordon Brown carried on insisting that the UK should have a rule of 60%.
In conclusion, I believe that there is a strong case for the Government introducing a debt break rule in the UK, accompanying it with actions that restrain the growth of government and reduce the overall burden of taxation.